May 28, 2014 (LBO) – Sri Lanka’s Central Bank did not want the rupee to appreciate quickly and had bought dollars heavily in the market to prevent an appreciation and help exporter profits, Deputy Governor, Ananda Silva said. Analysts say a flurry of dollar purchases in excess of inflows then pressure the exchange rate which may lead to incidents of ‘moral suasion’.
Silva said the exchange rate was kept down to help exporters by dollar purchases.
“Because if we were not really ‘manipulating’ the way you say we were ‘manipulating’, the rate would have appreciated, and it would have hurt the exporters more,” he said.
“We do not want the rate to appreciate in a shorter time, that is not good for the market actually.”
As long as credit is weak, liquidity will build up and imports and also the deficit in the current account will be narrow.
Silva said Sri Lanka is expected to have a trade deficit of around 7 to 8 billion rupees this year and the current account deficit to narrow further compared to last year.
“So there is not that much pressure for the currency to depreciate so much,” he explained.
“I am not in a position to tell what the exchange rate would be in thre